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Clearing Up Myths about Estate Taxes in Estate Planning

TPlanning

USA Today recently published a helpful article clearing up some confusion regarding federal estate taxes and how frequently heirs have to pay them when they inherit property, such as a farm or small business. Specifically, in some of his speeches, President Trump has stated that these heirs often have to “’sell the farm’ in order to pay the tax,” often referring to the tax as “the death tax.”

However, in reality, less than one percent of heirs of farm owners, for example, are actually expected to pay estate taxes. In fact, it is practically unheard of for someone to have to sell a farm or ranch in order to pay the tax.

Estate Taxes on Inherited Property

For estates of persons who died in 2017, the tax is applicable only when the assets of an estate are more than $5.49 million per person (or nearly $11 million per couple), thus, only the wealthiest pay it. For example, in 2015, less than 5,000 people ended up having to pay an estate tax–roughly equating to one out of every 500 deaths.

Exemptions & Special Provisions for Farmers & Small Businesses

These numbers are very low for farmers and small businesses because there are exemptions written into the estate tax code for them, which allow them to avoid paying it altogether. Some of those exemptions include, for example:

  • Providing $500,000 for those who agree to perpetual conservation easements restricting the use of their land;
  • Allowing for anyone who inherits a farm and has difficulty paying the estate tax to spread the payments out over the course of 14 years;
  • Providing $1 million if heirs agree to farm the land for an additional 10 years; and
  • Allowing for landowners and heirs of the estate to give out portions of the land to other heirs as gifts over a number of years in order to reduce its overall value and thus remove it from estate tax liability; amongst other exemptions.

Thus, in 2015, for example, only a fraction of properties that paid estate taxes actually involved farm assets; specifically, 639 total in the entire country paid the tax. Each year thereafter, it only decreases: According to a study published by the Economic Research Service, in 2016, only .42 percent—or 161 estates—owed any estate tax at all. Other studies have estimated that even fewer will pay the tax in 2017; perhaps as few as 50 total farms.

Estate Planning Attorneys Serving Sarasota & Surrounding Areas

It is important that you work with an experienced attorney when it comes to estate planning. You want to be sure that everything is accounted for, exactly as you wish it to be, when you pass on your inheritance.

If you live in Sarasota or a surrounding area, contact our experienced team of estate planning attorneys at Moran, Sanchy & Associates today to find out more about how we can help. We are eager to help you today.

Resources:

usatoday.com/story/news/politics/2017/09/28/fact-check-death-tax-talking-point-wont-die/711730001/

fas.org/sgp/crs/misc/R42959.pdf

ers.usda.gov/topics/farm-economy/federal-tax-issues/federal-estate-taxes/